Friday, August 02, 2013

PPI repayments reach £18.4 billion. Why the scorpion bankers will never change their nature!

A scorpion, realising his house was on fire on the other side of the river, begged a frog to carry him across the water on his back so he could try and rescue his family. The frog refused, saying 'Are you crazy? You're a scorpion and you will sting me and we will both drown.' The scorpion said 'Don't be daft, why would I do that when I need you so badly'! So the frog agreed. Half way across the river, the scorpion reared up  and stung the frog in its back, fatally wounding it. As he was slipping under the water the frog croaked; 'Why did you do that?' The scorpion replied as he was swept away, 'I can't help it, it's in my nature!'

The British retail banks are the modern scorpions. Barclays, Lloyds, RBS, Nat West, Nationwide, HSBC, you call the roll of shame and you are looking at a line-up of scorpions. Never mind about the new-look that they are promising, the customer-friendly adverts, the protestations of new cultures, they have no ordinary morals and they have the nature of scorpions. When it comes to parting their clients from their money, the banks just cannot help themselves, it's in their nature!

The Times of 2nd August 2013 reports that banks have now agreed to pay the equivalent of almost £400 to every adult in Britain as the country’s biggest mis-selling scandal continues to grow. Compensation payments for Payment Protection Insurance reached £18.4 billion yesterday — twice the cost of the Olympics.

The banking sector ignored warnings for almost a decade about the way it sold PPI products. For over ten years the wobbly regulators pussyfooted about issuing warnings which they didn't follow up with action! 

State-owned banks have paid a particularly heavy price, with Lloyds saying yesterday that it had underestimated by £450 million the amount it must pay. Well, you can understand how this might happen, I mean when you have stolen so much money you cannot work out how much you have nicked, understating the total by £450 million is an understandable mistake.

It means that Lloyds, in which the taxpayer has a 39 per cent stake, faces a total bill for PPI that is expected to hit £7.3 billion, greater than the cost to any other bank. RBS announced today that it was putting aside an additional £125 million to meet the cost of compensating its defrauded victims.

And that is exactly the truth of the situation. These so-called PPI mis-selling instances were nothing more than an institutionalised campaign of organised criminal fraud.

Readers of this blog should never, ever, forget this feature. This was a concerted attack on helpless clients and it was done deliberately. It was endemic within the retail banking industry, and its implications percolated from the boardroom down to the newest sales-clerk on the front desk. 'Sell PPI if you want to make your sales targets. Make your sales targets if you want to keep your job.'

PPI fraud was the leitmotif of the British financial services industry in the eighties, nineties and the noughties. It was money for old rope and it was the most lucrative form of profit generation that the institutions had ever known. It cost them virtually nothing because most policies were never intended to pay out.

This was organised enterprise crime at the highest level, and nothing was ever done about it by the regulators, who preferred to spinelessly avert their gaze from the activity, sooner than involve themselves and put a stop to this pernicious practice. And remember this - every CEO in the business was a full part of this industry culture when he or she was on the way up the slippery pole.

It was the ease and the normless attitude of the banking sector that encouraged them to engage in new and further criminal activities, hence the development of interest rate swaps and other forms of dubious risk management products.

I once chaired a seminar debate for a group of bankers which asked 'Why does the financial services sector get such a bad press'. One leading CEO from a well-known high street retailer who had refreshed himself too liberally at lunch, and believing he was among industry friends, answered the question in one sentence.

"Because they know that we rip our clients off at every possible opportunity"!

I have to reiterate, this behaviour was criminal conduct being engaged in by an industry that had lost its moral compass and was busy trying to screw its clients by every means possible. The customer was seen as a dupe, a patsy, who was there to be deceived and ripped off by any means possible. The common phrase used by Chief Executives was that they wanted to have as big a share of the customer's wallet as possible'! And no-one ever tried to stop them, least of all the regulators!

It was conduct sustained by the level of bonuses that were paid to successful thieves who managed to score the biggest amount of money from their clients. Staff with consciences were quickly weeded out, 'either make your numbers, or ship out!'

One of my neighbours told me about his experiences when working for HSBC. He was not a brilliant salesman, and he was always behind in his figures. In an attempt to prevent being sent to a sales-retraining course which was considered to be a humiliating badge of failure, he would eventually be forced back to selling worthless PPI insurance. He told me how he would go home at night and be physically sick, worrying about the number of clients he had cheated, because he knew it was dishonest, and he was defrauding them. When he raised his concerns in the bank, his colleagues and managers just laughed at him and told him to 'man up'!

So, when the banks start complaining about being bashed, remember, they have committed £18.4 billion worth of financial crime, and it will continue to grow as a total set of losses.

If the people who had committed crimes of this financial enormity were Turkish drug dealers, or Romanian pick pockets or Bulgarian people traffickers, you can bet your last penny that the Government would have turned every law enforcement and intelligence agency on to them to arrest and imprison them, but because it is the City and the financial sector that is guilty of these crimes, the regulators will let them just pay the money back.

They will do this because they haven't got the bottle to stand up to the banks and tell them where to get off. During the initial PPI review process, the banks threw a lot of resources at defending their utterly reprehensible and defenceless conduct.

What can not be disputed is the fact that the banking sector's legal rearguard action against PPI caused it huge amounts of political damage, but their nature to defend even the most egregious conduct, meant that they would shamelessly throw money at m'learned friends to try and buy a positive verdict! It was their nature coming to the fore again, their nature as scorpions.

After Mr Justice Ousely threw out the original bid by the British Bankers' Association (BBA) to derail the process, the headlines were about as negative as was possible. Here was a banking sector – after all the damage of the financial crisis – hell-bent on defending to the very last ditch what was frankly indefensible. The BBA even ignored the hubris and considered an appeal against Mr Justice Ousely's ruling.

This behaviour is and was typical of the banking hierarchy, they considered themselves to be an elite, men (and they were largely men) who were inured to criticism and were able to throw resources at any challenge.

This mental state has not changed, these men are still largely embedded in the fabric of the banking industry, and it will only be a question of time before they start looking at the financial products they are selling and wondering how they can develop new products which will make them more profit.

They have to do this because it is hard to make money from ordinary retail banking, particularly when clients are not willing to pay bank charges!

So, let us make sure that we never forget the way in which these institutions have conducted themselves, and how much financial damage they have caused. This was an industry engaged in a wholesale exercise of organised financial crime, and the impact has been devastating from the perspective of guaranteeing client loyalty.

The banks do not care, they figure that they can always usher new clients into their corrals, so this is why we must never, never forget what levels of dishonesty to which these people will sink, and why we need to be constantly vigilant to make sure they can never do it again.

A very clever US fraud prosecutor with whom I used to work in the old days once said to me;

"...Fool me once - shame on you! Fool me twice - shame on me..."

We all need to remember this advice, and never forget the banking scorpion will never change his nature!                                                                                                                                                                                   


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